AIB bondholders challenge plan to change debt terms
Wed Apr 20, 2011 3:59pm EDT
* Government targeting 2.6 bln euros of AIB sub bonds
* Bondholders could lose up to 80 pct
* Investor: Plan violates 'fundamental property rights'
By
Conor Humphries
DUBLIN, April 20 (Reuters) - Holders of subordinated bonds in Allied Irish Banks (
ALBK.I) have launched a challenge to plans by the Irish government that would slash the bonds' value by around 80 percent, one of the investors said on Wednesday.
A High Court order last week handed the government the right to impose changes to the terms of 2.6 billion euros worth of AIB subordinated bonds. Finance Minister Michael Noonan said he expected the bonds to lose around 80 percent of their value. [ID:nN14249964]
Carlos Abadi, director of Abadi & Co Securities Ltd, which holds subordinated AIB bonds, told Reuters he had appealed the court's decision to grant a Subordinated Liability Order, which had been due to come into effect on Wednesday. The case will be heard on May 9, he said.
"We have made an application to the High Court to set aside or modify the Subordinated Liability Order," Abadi said. "We think we have compelling argument and have Irish and European law on our side."
Abadi said the order violates "fundamental property rights" and does not allow for bondholders to recoup losses if the bank returns to profitabilty and repays support from taxpayers at a future date.
New York-based Aurelius Capital Management, LP also made an application to the High Court on Wednesday to block the Subordinated Liability Order, Irish state broadcaster RTE reported.
The order would amend certain subordinated debt coupon terms and maturity dates, and permit AIB to purchase debt instruments, the finance minister said last week.
AIB said it would not pay interest or coupons on some subordinated bonds, and would extend the maturity of some other bonds to 2035.
Ireland took an 85-billion-euro ($120 billion) bailout from the European Union and International Monetary Fund last November after the collapse of a construction boom crippled the banks that had financed it.
The government last month said it would seek significant contributions from junior debtholders in its banks to help pay for recapitalising the industry, a cost that has so far fallen mainly on taxpayers.
Irish lenders have around 7 billion euros worth of outstanding subordinated bonds, according to Central Bank figures released earlier this month. (Writing by Conor Humphries; Editing by Leslie Adler)
